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The old and the new in heterodox stabilization programs : lessons from the 1960s and the 1980s

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  • Kiguel, Miguel A.
  • Liviatan, Nissan

Abstract

The objective of this paper is to gain new insights about the strengths and weaknesses of the heterodox approach for stopping inflation based on the experience of programs implemented in some Latin American countries and Israel in the sixties and eighties. The most important income policies supported stabilization programs in recent years were those launched in Argentina in June 1985, in Israel in July 1985, in Brazil in February 1986 and most recently by Mexico in 1987 - 88. The authors point out that tight fiscal policy is critical to the success of a heterodox program, particularly during the flexibilization period in which price and wage controls are removed. In the failures of the 1960s and the 1980s, the budget situation had already deteriorated when controls were removed. A relaxed fiscal stance during the freeze led to a sharp acceleration of inflation later. Heterodox programs fail not because income policies are poorly designed but because the fiscal effort does not persist.

Suggested Citation

  • Kiguel, Miguel A. & Liviatan, Nissan, 1989. "The old and the new in heterodox stabilization programs : lessons from the 1960s and the 1980s," Policy Research Working Paper Series 323, The World Bank.
    • Handle: RePEc:wbk:wbrwps:323
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    References listed on IDEAS

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    Cited by:

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    2. Guillermo A. Calvo & Carlos A. Végh, 1994. "Inflation Stabilization And Nominal Anchors," Contemporary Economic Policy, Western Economic Association International, vol. 12(2), pages 35-45, April.
    3. RUGE-MURCIA, Francisco J., 1997. "Credibility and Signaling in Disinflation- a Cross Country Examination," Cahiers de recherche 9712, Universite de Montreal, Departement de sciences economiques.
    4. Bayir , Ilker, 2012. "Currency Reform in Turkey and Lessons from Re-Denomination and Euro Changeover," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 6(2), pages 1-33, December.

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